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Scarce Tire Supplies Costing Automakers

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On: Mon, Jun 27, 2011 at 3:52PM | By: Tim Healey

Scarce Tire Supplies Costing Automakers

Thanks to plant closings and a surging demand for specialty tires, North American automakers are finding the costs for tires rising quickly.

With some tire plants now being shuttered, and low-volume specialty tires now in higher demand, tire makers have now gained leverage in terms of pricing, which is costing automakers more. Price increases from last year have hit the double-digit percentage range.

Tire makers say they can't keep up with demand, but the shortage doesn't appear to be affecting automaker's production plans. Still, automakers are trying hard to make sure they have enough supply on hand.

One automaker official estimates it will take a year or so for the shortage to clear up.

Automakers pay about $75 per tire for low-end models to up to $300 per unit for premium rubber.

Continental Tires is responding by expanding existing plants in Illinois and Brazil and building a new plant somewhere in North America. The expansions in Illinois and Brazil won't come online until 2013, however.

Meanwhile, automakers are on pace to buy 62 million tires this year, up from 55 million last year.

An expansion of tire sizes, along with the proliferation of specialty tires, has only made the problem worse. Producing those types of tires takes up capacity at the plants.

Not only that, but plant closures over the last few years have eliminated about 71 million units in capacity. On top of that, a three-year tariff on Chinese tires has slowed that flood of imported rubber.

The result is that tire prices paid by the automakers have risen sharply, and there's a good chance that those costs could get passed on to retail consumers. The costs for replacement tires has been rising too, and that will affect the price paid by car owners when the original equipment tires wear out.

Just one more reason why the cost of buying and owning a car is rising.


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